Oregon Advisory Opinions January 01, 1951: OP 1635

Advisory Opinion Text

A school district clerk is not author­ized to pay bills with checks out of cash on hand unless warrants therefor are issued by the school board directing the clerk to make the disbursements.

District school boards do not have either express or implied authority to issue checks, but they are authorized to issue warrants which are nonnegotiable in form.

No. 1635 January 4, 1951 Honorable Rex Putnam

Superintendent of Public Instruction Dear Sir: Under date of December 27, 1950, you sent to us a letter from the Lane county school superintendent and requested our opinion on the questions presented therein. Her letter reads in part:

"Pursuant to Chapter 307 Oregon Laws, 1941, Lane County School District No. 52 has borrowed money on short term notes, placed the money in its checking account and has disbursed funds by check rather than warrant. By doing this the school district has achieved a much lower rate of interest and has cut its bookkeeping considerably because it has not been necessary to prepare a warrant for each expenditure.

"It has been suggested that this method of disbursing funds is not according to law, but instead all bills must be paid by warrants. It has been suggested that if the school district has cash on hand a warrant should be pre­pared and a check prepared and the bills actually paid by check, the clerk retaining the warrant in her books as her authority to pay the bill."

We will answer her questions in the order submitted.

"1. Does the school district clerk have au­thority to pay bills with checks out of cash on hand in the district's checking account without preparing warrants for each disburse­ment?"

The only statutes which are pertinent to this inquiry are the following:

Section 111-1611, O.C.L.A., provides in part:

" * * * school funds of districts of the first class, second class and third class, and all union high school districts, shall be dis­bursed only by the respective clerks of such districts of the several counties upon warrants drawn upon such district clerks by the boards of directors of the respective school districts * * * in the manner now provided by law. In school districts of the first, second and third class, and in all union high school dis­tricts, the boards of directors of the respective school districts * * * shall designate such bank or banks within the county or counties in which such first, second and third class school districts, or union high school districts are located, as the board of directors * * * deem safe and proper depositories for school funds for the purpose of receiving on deposit funds of said school districts. * * *" (Em­phasis supplied) Section 111-1081, O.C.L.A., provides: "School warrants shall not be issued with­out a vote of the district school board and they must be drawn and signed by the chair­man of the board and countersigned by the district clerk; provided, that if there should not be any money in the treasury, they shall be marked 'Not Paid for Want of Funds,' and said orders shall draw interest at the legal rate from the date of indorsement until paid;

Section 111-1044, O.C.L.A., provides: "The board may authorize the chairman and clerk to draw warrants for the payment of teachers' salary at the end of each school month, upon proper evidence that the service has been performed, * * *."

In Opinions of the Attorney General, 1944-1946, p. 490, a proposed pay roll plan for the issuance of a "master pay roll warrant", which would authorize the clerk to draw checks for the in­dividual employes from a special ac­count, was disapproved by this office. After referring to the sections above quoted it was said:

"Construing these sections together, it ap­pears to be the intention of the legislature that the salaries of the teachers and other employes of the school district be paid by warrants.

"A warrant has different characteristics under the law merchant than those of a check, although for some practical purposes a state warrant is often treated as if it were on the same footing as a check: Brannon's Negoti­able Instruments Law, 6th Ed., p. 110; 7 Am. Jur. (Bills and Notes), Sec. 225, p. 920. When the legislature used the word 'warrant' it used a technical word meaning a certain type of instrument and no other.

"I am, therefore, of the opinion that the salaries of the employes of a school district should be paid by warrants drawn and signed by the chairman of the board and counter­signed by the district clerk, as provided in the sections of the law above quoted."

In response to the first question, it is our opinion that the school district clerk does not have authority to pay bills with checks out of cash on hand without hav­ing been presented with a warrant issued by the school district board directing the clerk to make such disbursement.

Your second question is:

"2. Does the school district clerk have au­thority, under the law, to pay bills by check if a warrant is made out and signed by the Chairman and Clerk for each disbursement?"

In our opinion the procedure suggested by the above question is entirely proper and within the statute. The law au­thorizes the disbursement of school funds by the respective clerks of the school districts upon warrants drawn upon the district clerk by the board of directors: Sec. 111-1611, O.C.L.A. This sec­tion further empowers the boards of directors to designate "such bank or banks within the county" as the district shall "deem safe and proper depositories for school funds for the purpose of re­ceiving on deposit funds of said school districts." The final sentence of Sec. 111-1611 provides that school clerks shall not be liable personally or upon their official bonds for any moneys that may be lost by reason of the failure or in­solvency of any bank which becomes a depository under the provisions of the act.

The state department of education has suggested that all school district funds in districts of the first, second and third class and union high school districts are to be deposited in banks under the clerks' names, for example, "John Doe, Clerk, School District No. 16, Marion County, Oregon." Upon receipt of war­rants drawn on the clerk as custodian of the funds by the school board the clerk then proceeds to pay the order by check.

In our opinion this procedure is au­thorized by law, and accordingly your second question is answered in the af­firmative.

"3. Does the school district clerk have au­thority, under the law, to pay bills by the warrant-check, a form of which is enclosed herewith?"

In School District 47 v. U. S. National Bank, 187 Or. 360, action was brought by the plaintiff school district to re­cover from the defendant bank the sum of $34,953.50, which plaintiff alleged was wrongfully paid by the defendant bank from funds of the plaintiff on warrants which were forged. The principal ques­tion was whether or not the warrants issued by the school district were "checks" so as to be classified as nego­tiable instruments within the meaning of the law merchant or the negotiable instrument act of Oregon. The court held that the instrument was a warrant rather than a check, because:

"District school boards in this state do not have either express or implied authority to issue checks, nor do they have authority to issue negotiable instruments without first be­ing authorized to do so by a majority of the legal voters of their districts. They do have, as we have pointed out, authority to issue warrants drawn upon the respective clerks of the school districts. We think that the in­struments here involved are warrants pur­portedly drawn by the board of directors upon the clerk of the district and payable at the bank designated on such warrants. They are not checks, and they are nonnegotiable."

It was further contended in that case that the words "Payable at U. S. Nat'l Bank St. Helens, Oregon", at the lower left-hand corner of each of the instru­ments involved, converted to checks what would have been, without such wording, school warrants. Answering this contention the court said:

"We do not believe that the character of these instruments can be changed from non-negotiable to negotiable instruments, or from warrants to checks, by the 'practical inter­pretation of the terms' thereof by the parties dealing with them. We are not here con­cerned with private dealings but with matters affecting the public. A school district is an agency of the state. It derives all its powers from statute, including the manner in which its funds can be disbursed. * * *" (Em­phasis supplied) The proposed form which you enclosed is to all intents and purposes a school district warrant with the exception that at the lower right-hand corner reference is made to a particular bank, with the direction that it shall "Pay the amount of the above warrant to the order of the payee against the account of the Clerk of School District No. 52, Lane County, Oregon, Eugene, Oregon", and a place for the signature of the district clerk.

In your letter of transmittal you in­dicated that this proposed form "permits converting the warrant to a check simply by signing the order on the bank in the lower right-hand corner when the warrant is to be paid when funds are available or if the funds are available when the warrant is made out. The banks have indicated a will­ingness to accept such a warrant check instead of the warrant and check presently used."

Regardless of the convenience or merits of the proposed system, it appears to us that there is no statutory authority for it. As previously indicated, school district boards do not have authority to issue checks, but they are authorized to issue warrants drawn upon the clerks of the respective school districts. The reason for requiring school warrants to be nonnegotiable in form is illustrated by the following statement in 7 Am. Jur., Sec. 225, p. 920:

"The rule is well settled, by considerations of public policy as well as by a decided preponderance of authority, that warrants, certificates of indebtedness, or orders drawn by one county, city, school, state, or town officer on another in the disbursement of the funds of the municipality and payment of its indebtedness are not to be regarded as nego­tiable or commercial paper cutting off equities against the corporation. They acquire no greater validity in the hands of third persons than they originally possessed in the hands of the first holder, no matter for what con­sideration they may have been transferred, in what faith they may have been transferred, or in what faith they may have been taken. If illegal when issued, they are illegal for all time. The name, form, or purpose of the writing is not a material consideration. Such an instrument, in the eye of the law, is non-negotiable, even though as to form and in other respects it is of a negotiable character. * * *"

The proposed form of warrant-check would "convert" the warrant into a check by the mere endorsement of the clerk's signature thereon each time a warrant is issued and funds are avail­able for payment thereof. Presumably, the defenses attaching to nonnegotiable instruments would no longer be avail­able to the district whenever the clerk entered his endorsement thereon. It appears to us that the present system for issuance of school warrants by the school board and disbursements by check drawn on school district funds by the clerk of the district, as suggested by the state board of education, is more in keeping with the decision in School District 47 v. U. S. Nat'l Bank, supra, than the form submitted in your letter. Since we find no statutory authority for the issuance of "warrant-checks" it is our opinion that your third question must be ans­wered in the negative.

"4. Is it necessary that all disbursements made by a school district be made by war­rant?"

Your final question is answered by the preceding discussion. Disbursements of school funds by districts of the first, second and third class are to be made by the issuance of warrants signed by the chairman of the school board, counter­signed by the clerk, directing the clerk to make payment of the amount desig­nated out of money belonging to the district. If funds are available at a bank or depository designated by the board, the clerk is empowered to honor the warrant upon his receipt thereof by issuing a check drawn upon the school funds in the amount set forth in the warrant.

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